Executing an initial public offering is one of the most important milestones for many companies. It is vital that you do your homework when considering which investment banks you will use when you are approaching an IPO, as well as acquisitions and additional capital raising events. This relationship can make or break the success of your planned event, and many times, it is a relationship that can last for years to come.
Below are some of the top factors to consider and question when choosing an investment bank partner:
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- What is the bank’s transaction experience, specifically with comparable companies? As many transactions can take several months to complete, it is important that the team at your investment bank has the skills and experience necessary to move the deal process along to an ultimate close. Ultimately, this team is comprised of constituents from investment banking, equity capital markets, equity research, institutional sales and trading. There are many potential hiccups and pitfalls along the way, and you want to feel confident that your team has “seen it all.” Ask about their prior deals and transaction experience – specifically what has gone wrong and how they have dealt with it.
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- Analyst thought leadership in the sector? While your banking and ECM team will drive the successful execution of your IPO or transaction, the analyst relationship is critical. You will develop a long-term relationship and regular dialogue with your covering analysts. It is important that they understand your sector and company well, have strong relationships with investors and strong distribution of their research. Do they cover companies of a similar size and stage? Is their research thoughtful and impactful?
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- Is your transaction important to the bank? Specifically, who is on your deal team and will you get senior level support? Also, get to know the other players that will be working on your deal, as you will be spending a lot of time together. Are you comfortable with the analysts and associates who will be doing much of the day to day work? Ultimately, the hope is that the senior banker will leverage their years of experience and deep network to nurture your deal through to close, while giving you the level of attention and involvement you feel is necessary.
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- How many deals has the bank worked on recently that didn’t close, and why? This is a subtle yet important conversation to have in order to understand why deals may have fallen apart, and how the banking team handles challenges along the way. Ask for referrals to recent companies they have worked with to get a better understanding of the banker’s work ethic, morality and level of engagement.
- Overall – is this a good partnership? It is not always best to only partner with bulge bracket banks. Often, emerging growth banks may be a better “fit” for an emerging growth company, depending on size and stage. Your partners – in banking, equity research and equity sales – will all need to understand your business and where it fits into the sector, and then communicate that knowledge externally. You are also relying on your banking team to set a valuation range for your company Be open to hearing the banker’s rationale as to how they got to that number, and don’t set unrealistic expectations for your company’s worth. At the end of the day, trusting your team is important, and you need a solid partnership.
Conclusion: While the process of choosing an investment bank partner may seem daunting, following these suggestions can set you up for success. Remember, view the process as an investment in your company for the long term. If you take the time to get to know the collective teams at several banks, you will build relationships that will inform who ultimately becomes your deal team. In addition, you will ideally be paid back with a successful deal close and a strong banking relationship for your future needs. Talk to us about our vast network of investment bankers and how we think about identifying the right banking syndicate.
Lynn Pieper Lewis, Founder & CEO
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